The Supreme Court of the Russian Federation has for the first time allowed conversion of cryptocurrency into fiat currency to be considered money laundering

Circumstances of the case

The defendant in the criminal case illegally stored precursors of narcotic drugs on a particularly large scale and also engaged in their illegal production as part of an organised group of individuals. The court found that the money from buyers was received in the form of cryptocurrency, which the defendant converted into roubles and transferred to bank accounts and payment cards.

The court of first instance acquitted the defendant on charges of money laundering.  The verdict stated that "the commission of financial transactions with funds converted from bitcoins, in the form of their transfer from a virtual account to bank cards, but without putting them into economic circulation, does not indicate legalisation of proceeds of crime, since the said financial transactions did not give the legal form of possession of the funds received by him for carrying out criminal activities".

Positions of judicial institutions

The criminal case was heard in three instances: in the court of first instance, on appeal and on cassation. 

The court of first instance

The court of first instance found and stated in the judgement that the defendant "using banking technologies - electronic money, plastic cards - allowing to avoid the procedure of bank control and exclude the possibility of identification of him and persons making transactions, the defendant converted virtual assets - cryptocurrency "bitcoin" into cash - roubles and in order to give a legitimate appearance of possession, made financial transactions to transfer 8.2 million rubles from the virtual account to payment cards and bank accounts".

The Appeal Court

The Appeal Court agreed with the first instance court's decision to acquit the defendant and summarised that "the cashing of the funds did not entail their legalisation". 

The deputy prosecutor general appealed to the higher court, pointing out that the defendant had purposefully carried out financial transactions involving the transfer of funds from a virtual account to bank cards issued to the daughter of his cohabitant, making their possession look legitimate and putting more than 8 million roubles into legal circulation. 

According to the Supreme Court of the Russian Federation, in its ruling the appeal court "expressed extremely contradictory judgements". The Supreme Court notes that financial transactions for the purposes of Articles 174 and 174.1 of the Criminal Code of the Russian Federation ("Legalisation (Laundering) of Money or Other Property Obtained by Others by Criminal Means" and "Legalisation (Laundering) of Money or Other Property Obtained by a Person as a Result of Committing a Crime", respectively) are understood as any transactions with funds, including cash and non-cash settlements, cash transactions, and that the subject of legalisation (laundering) may be, among other things, money transformed into money. At the same time, according to the law, these financial transactions knowingly for the perpetrator disguise the connection of the legalised property with the criminal source of its origin.

The Supreme Court of the Russian Federation clarifies that: "The purpose of giving a lawful appearance to the possession, use and disposal of money or other property acquired by criminal means may manifest itself in the performance of financial transactions for cashing in money acquired by criminal means, including through the use of electronic means of payment, as well as accounts of individuals who are not aware of the criminal origin of the relevant funds".

Position of the Supreme Court of the Russian Federation

The Supreme Court of the Russian Federation notes that the method chosen in this case of obtaining funds through successive financial and banking transactions, namely: crediting funds to a controlled virtual account - cryptocurrency "bitcoin", its further conversion through various virtual exchangers into rubles, transferring funds to bank cards registered to another person and cashing them out through bank terminals, indicates that the convicted person had the purpose to legalise the funds.

Contrary to the conclusions of the court of the first and appeal instances, for the existence of the corpus delicti under Article 174.1 of the Criminal Code of the Russian Federation is not required mandatory involvement of legalised funds in the economic turnover, since liability under the said article of the law comes upon establishment of the very fact of committing financial transactions with the purpose of making the possession, use and disposal of money or other property lawful", - the Supreme Court emphasises.

In connection with a substantial violation of the criminal law, which affected the outcome of the case, the court's verdict in terms of acquittal of the defendant under Part 4 of Article 174 of the Criminal Code of the Russian Federation cannot be recognised as lawful and well-founded, the Supreme Court of the Russian Federation stated. In this regard, the Judicial Board decided to send the criminal case in this part to the Ryazan Regional Court for a new consideration.

The full text of the cassation ruling is available at link

 


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